A recent decision of the Ontario Court of Appeal in Abbasbayli v. Fiera Foods Company provides insight into the statutory claims that may be brought against corporate directors for unpaid wages and vacation pay in the context of wrongful dismissal.

Terminated Employee Makes Claim for Unpaid Wages Against Corporation and Directors Personally

The Plaintiff, Mr. Abbasbayli sued three corporations that were alleged to have been his employer as well as two individual corporate directors. The Plaintiff was employed from 2002 to March 2018 when he was terminated for cause after being accused of punching a colleague’s time card. The Plaintiff claimed the allegation was false and was used as reprisal for concerns he had raised about health and safety as well for steps he had taken to organize a labour union. The Plaintiff’s action claimed damages for wrongful dismissal and punitive damages. He also included personal claims against the individual corporate directors for unpaid vacation pay under the Employment Standards Act (the “ESA”) and Ontario Business Corporations Act (the “OBCA”) in addition to relief from oppression under the OBCA.

The respondents brought a motion to strike portions of the Statement of Claim on the basis that they failed to disclose a reasonable cause of action, pleaded evidence, and contained information that was irrelevant and inflammatory.

At issue before the Court of Appeal was whether the motion judge was correct in striking down the ESA and OBCA claims without leave to amend the pleadings. At the outset, the Court recognized that they must always consider whether a deficiency can be addressed by amending the pleading. Yet, the claim under section 81 of the ESA was properly struck as it was plain and obvious that the claim could not succeed.

The section does provide for the liability of directors for employee’s unpaid wages in limited circumstances, such as in the employer’s receivership or bankruptcy, if an employment standards officer has made an order that the director is liable, or if the Labour Relations Board has confirmed an order. Additionally, the Court noted that usually a claim against a director for unpaid wages would be advanced through the ESA’s statutory regime, but assuming the section 81 claim could be pursued in a wrongful dismissal action, the Plaintiff did not propose to plead any facts that could meet the legislative preconditions.

Corporate Directors can be Named as Defendants in a Wrongful Dismissal Case

Section 131 of the OBCA provides that directors of a corporation are personally liable for six months’ wages and vacation pay up to a year if:

• the corporation is sued and execution is returned unsatisfied; or
• the corporation is involved in certain insolvency proceedings and the employee’s claim has been proved.

In this instance, the Plaintiff had pleaded the necessary facts in support of a claim against the directors. Though the section 131 pleading was too broad by wrongly claiming damages for wrongful dismissal that the section would not cover, it did disclose a cause of action, and the Court granted leave to amend the pleading. Significantly, it was not premature to assert the claim against the directors in the action, as section 131(2)(a) contemplated that the employer would be sued in the same action as the director, with the director only assuming liability if the execution against the corporation went unsatisfied.

Employees May Bring Oppression Claims under the OBCA

The Plaintiff also sought relief under the OBCA’s section 248, which provides a remedy against oppression, which is conduct that is unfairly prejudicial or unfairly disregards the interests of any security holder, creditor, director, or officer of the corporation. In support, the Plaintiff alleged that the directors did not carry out their duties in good faith when directing his dismissal and in failing to instruct the employer to remit wages that were owed.

The Court found that wrongful dismissal will not usually justify a finding of oppression. Further, a terminated employee will not always have standing as a complainant under section 248. Oppression claims in the context of a wrongful dismissal action are usually brought by shareholder-employees whose interests were disregarded. However, the Court found that “claims have been asserted successfully by non-shareholder employees where a director’s conduct has prevented the corporate employer from paying wages or wrongful dismissal damages”. Nonetheless, it is not sufficient to allege the directors of the corporate defendant acted oppressively and to claim damages against them.

A proper cause of action for oppression requires the plaintiff to identify the reasonable expectations they claim were violated and to also show how those expectations were violated by conduct that was unfairly prejudicial. Imposing personal liability on directors further required that there be oppressive conduct that is attributable to the director because they are implicated in the oppression, and that personal liability be “fit” in all the circumstances. The Plaintiff did not address the necessary elements in his pleading and there were insufficient material facts to establish a claim for oppression under section 248, though the Court upheld the motion judge’s decision allowing the Plaintiff to amend the pleading. 

An Opening for Directors to be Dragged into Wrongful Dismissal Actions

The decision is noteworthy for laying out some of the considerations around directors’ liability for unpaid wages and vacation pay in wrongful dismissal actions. The Court confirmed that these employment claims may arise in appropriate circumstances under section 131 of the OBCA, with similar claims under section 81 of the ESA facing greater barriers. Also significant is the recognition that non-shareholding employees may advance oppression claims under the OBCA, though these will be appropriate only in limited circumstances.

The lawyers at Milosevic & Associates in Toronto are skilled at providing strategic litigation advice across complex commercial matters. Our team has extensive experience with matters concerning director and officer liability. To learn how we can help you call us at 416-916-1387 or contact us online to schedule a consultation.